Public Sector Pay and Pensions - A Luxury We Can't Afford ?

I am increasingly wary of public sector bashing as it is too easy for Government, who have created the big divide between public and private, may be tempted to make use of it to distract from their own responsibility.

This report from Finfacts today gives nuts and bolts on the national costs of salaries and pensions in the Public Sector.
With private sector unemployment going up, the divide is even more galling to many private sector workers.

It has been said often enough that Ireland is not employing excessive number of public servants compared with other european countries. The problem is the cost of employing them, inflexibility, in spite of bench-marking, and wasted resources - some people don't have enough to do and others are overworked.

It is plain that we cannot afford to pay what is being paid at present. I think that both pension and pay cuts are a much better idea than sacking workers at a time when they are unlikely to be reemployed and will remain a cost on the state anyway.

I also think that if a person's role is redundant due to the economic crisis - housing officers for example - they should be prepared to move to any available work for which they are qualified.

Should public sector workers now wake up and smell the roses, and take the pain like the rest of us?


Irish Public Sector Pensions' bill jumped €743m to €1.8bn in 5 years to 2008 - up 66.5% compared with pay rise of 45.4%
By Finfacts Team
Nov 7, 2008 - 5:46:34 AM

"Irish Public Sector Pensions have been termed among the best in the world and the beneficiaries include the politicians who are responsible for the system. It's called feathering your own nest. Pensions now account for 9.8% of the total Pay and Pension Paybill, up from 8.7% in 2003. Overall, the pensions bill has increased from €1.1bn in 2003 to €1.8bn in 2008 representing a 66.6% increase over the period while pay in contrast rose by 45.4%. The pensions bill has increased from €876m in 2001.

In Education and Science, the pensioner total is equivalent to 24% of the current workforce and is 26% in the Health sector.

The Department of Finance's Analysis of Exchequer Pay and Pensions Bill 2003 - 2008 Report says: "The increases in the first benchmarking report reflected the acute tightness of labour market conditions around the 1999/2001 period which saw a substantial number of private sector firms concluding pay deals significantly in excess of the standard terms of the national agreements then applicable. These conditions did not apply in relation to the second benchmarking exercise. The second report, published in December 2007, concluded that when account is taken of the more valuable pension arrangements in the public service relative to private sector arrangements (the superior value was assessed as 12% of salary) the vast majority of grades in the public service have not fallen behind private sector rates."


The Department doesn't says that public sector pay by comparable grade was below private sector pay in 1999/2001, as that claim would be fraudulent, even though it was the basis of the first so-called benchmarking special pay increase of an average of 9% - - which ministers, the rest of the public service and pensioners were awarded.

In 2004, the former Davy Stockbrokers economist Jim O'Leary who had resigned from the first benchmarking body because it was a farce, joined the Department of Economics at Maynooth University, and published with two of his colleagues, the results of six months' rigorous and painstaking research into public-private sector pay differentials in Ireland - Public-Private Wage Differentials in Ireland, G.Boyle, R.McElligott and J.O'Leary, ESRI Quarterly Economic Commentary, Summer 2004.

O'Leary and his colleagues wanted to discover whether similar people in similar employment circumstances were better or worse off working in the public than in the private sector. In order to do this, they had to control for attributes like age, experience, gender and education, and also for job characteristics like occupation, type of contract and size of establishment.

As the CSO data does not permit this kind of analysis, the dataset that they had to use is one based on a large-scale survey conducted by the Economic and Social Research Institute (ESRI) and used for much of its research into poverty and inequality.

The core finding was that on average, public servants earned 13% cent more than their private sector counterparts on a like-for-like basis in 2001.

The researchers discovered that the size of this margin (the public sector premium) in 2001 was not significantly different from what it had been in 1994, suggesting that pay increases in the public sector had kept pace with the private sector throughout the Celtic Tiger period.

Another discovery was that the margin by which public service workers outearned their private sector counterparts tended to be significantly larger at the bottom of the income distribution than at the top.

The first benchmarking body viewed pensions as being irrelevant in comparing public and private pay as the then Taoiseach Bertie Ahern and Finance Minister Charlie McCreevy wanted to produce a favourable end result for the public sector unions.

As for the second benchmarking report, the "more valuable pension arrangements in the public service relative to private sector arrangements," was assessed as 12% of salary, as if all private sector workers are covered.

Convenient indeed, but the majority of Irish private sector workers have no occupational pension. Besides, many of those who do, are exposed to the vagaries of the market.

Irish pension funds were down 33.4% in the year to October and the average annual return over the past 10 years was 1.9% -- less than inflation.

With a severe recession expected in 2009 and a slow recovery thereafter, returns will be poor for the foreseeable future. This will hit workers who will retire in that time frame. As for the rest of private sector workers, it's unlucky to be among the outsiders in Ireland.

For a private sector worker to have the equivalent benefit of a public sector pension, it would require funding of an estimated 25 to 28% of annual salary every year for 40 years.

The gilt-edged public sector pension is indexed for life to the earnings of current incumbents of the last job held. So when the Dublin City Manager got a 36% pay hike last October, his predecessor's pension also jumped 36%!!

Current Minister for Health Mary Harney will get an annual pension of about €130,000 plus a severance payment of €70,000, if she retires in 2012 at the age of 59. Her pension will then rise in line with ministerial pay rises for the rest of her life.

The Sunday Independent said last month that one of many beneficiaries of the generous public sector wage and pension structure is the current Chief Justice, John L Murray. As Chief Justice, he receives an annual salary of €295,915 a year -- which is now greater than that paid to the Taoiseach. On retirement he will also be entitled to a defined benefit pension which will be worth up to 60% of his salary a year and a lump sum of one-and-a-half times his final salary.

However, he is also currently paid a pension for his two stints as Attorney-General. Because that pension is linked to the current pay level for the position, €219,000, he received €69,042 in 2007 from the State as a pension. He also receives a pension entitlement from his time on the European Court of Justice.

It was estimated that it would cost as much as €9.5m to fund Murray's pension if he was in the private sector.

Public Sector Pay

Unemployment has risen by over 94,000 in the past year and the rise of 15,800 in October would be 1.2 million in the US on a population equivalent basis.

The number on the Live Register could well rise by 100,000 to 360,000 by the end of 2009.

“If we try to ride out this recession as if it is not affecting us or shouldn’t affect us, then we won’t be competitive, we won’t be able to increase our exports, we won’t be able to generate the wealth to get us back on track," Taoiseach Brian Cowen, said in an interview with Hot Press magazine, which was published this week. “As I say, this isn’t the full process of adjustment by any manner of means.”

"At the end of the day, if everyone stands up and says, 'Not me, mate'; don't be surprised if we don't get there as quick as we should,"Cowen told a, Economist Intelligence Unit (EIU) business conference last week.

He said the public has not yet grasped the gravity of the situation facing the country, in what he described as "the most severe global economic and financial conditions for a century".

The pay and pensions bill for 2009 will be about €20bn.

The proposed national pay agreement provides that all private sector workers will have a three-month pay pause. They will then receive a 3.5% increase over six months and a further 2.5% for the following year. Public sector workers will have an 11-month pay pause from the last module of Towards 2016.

They will then receive 3.5% for the next nine months (commencing 1 September 2009), and a further 2.5% for the remainder of the agreement.

In the private sector, apart from the thousands who will lose their jobs, many of the rest will not get any pay rise.

Apart from the pay rise in September 2009, public sector staff who are not at the top of their pay scales receive an annual increment of at least €1,000 in addition to any increase agreed through social partnership. For example in 2007, an executive officer in the public service with two years' service would have received an annual increment of €1,632 or 5% of salary in addition to the Towards 2016 increase of 4%, giving a total salary increase of 9%.

Every one per cent increase in pay for the public sector costs the public purse in the region of €200 million annually.

"At the moment, 10% of the cost of every teacher, doctor and nurse is being paid from borrowing. Any extra ones would be paid for 100% from borrowing.

"It does not matter if it is me, or somebody else, at the top table -- I'm certainly not infallible, as recent times have proved, but we are going to have to pull together to get through this.

"Business leaders need to stand up, and trade union leaders need to stand up, and say what the situation is," Cowen told the EIU conference.

It's overdue time he showed leadership to match his warnings.

Scrap all increases including increments in the public sector and implement a general cut of 10% on salaries above €100,000.

With home loan rates falling, public service staff would have an offset to either a pay freeze or a cut.

Publish detailed spending budgets with cross-departmental cost categories and implement public sector reform starting with numbers of Minister of State, advisers, constituency "helpers," the Oireachtas and across central and local governments - - How many housing managers have nothing effectively to do in local authorities, now that budgets have been slashed? The questions could go on and on."

The political and public service leadership are the biggest beneficiaries of the Irish Insiders' system. Will the public finances have to collapse before they take serious action?

brilliant post cactus.

i've long advocated that public sector pensions are unsustainable.

in the private sector, pensions are funded through an independant plan which is funded by both the employer and employee.
i.e. the employer must put in place a fund that earns a return equal to the benefits it must pay to the employee.

in the public sector, pensions are funded through tax revenue.

the difference is crucial as the private sector employer may have to put millions into the fund to make up for a shortfall in return on plan assets which have to be paid to the pensioners. the govt does not need to do this, only pay the shortfall directly from revenue.

the public sector employer (govt) has a massive funding advantage.

its against the law for a private sector employer to pay pensions in the same manner as the public sector employer.

Very informative post.

As a private sector worker it annoys me that my taxes are used to:
1. fund the current generous pensions for idle public sector workers and also
2. fund the future public sector pensions as part of the National pension reserve fund.

So my wages are funding current and future public pensions, and then what little remains goes towards my own pension which is affected by market conditions and may not be enough to support me in the future.

I worked in the public sector for a good few years and left at the beginning of the "slush fund" years. I was an active trade union member and I don't like to see anyone exploited. My experience of the "regrading" and "special computer payments" and then increase in management grade employment, (that brought automatic pension increases) was that they were welcomed (and why wouldn't it be?) but not hard fought for or demanded by workers. Consistently higher grades were favoured over lower grades, who really needed the increases.

It is my view that government's agenda in pushing money at the public services is vote driven, and was carried out without any regard to equity or to the long term well-being of the country. Zhou posted very thoughtfully on these questions yesterday, and it is fair to say that there was very little opposition to the road being taken.

We have to start now from where we are and learn from the mistakes of the past - these things are not mututally exclusive.

I'm away for a couple of days, so won't be able to reply any further until next week. I hope that someone from the public sector side can put their point of view.

Excellent observations on the public services cactus. Ever think of entering politics? If this is included in your platform, I'd give you a vote.

Now will you do something to close the wealthy's tax loopholes, offshore accounts and govt lobbying power?

rockyracoon wrote:

Excellent observations on the public services cactus. Ever think of entering politics? If this is included in your platform, I'd give you a vote.

Now will you do something to close the wealthy's tax loopholes, offshore accounts and govt lobbying power?

How about a Pan-European party Rockyracoon ? We'd need that to fix up the bolt-holes good and proper ? And we could keep our eye on Libertas at the same time

Cactus for the European Commission!

johnfás wrote:

Cactus for the European Commission!

She would have to be appointed by the Government through the European Council, and accepted by the Parliament. That appointment would, however, suit Cactus Flower given this forum's history of talking about people in secret forums.

I am well aware of the procedure cookie . I've achieved first class honours at undergraduate and postgraduate level in both European Politics and European Law.

johnfás wrote:

I am well aware of the procedure cookie . I've achieved first class honours at undergraduate and postgraduate level in both European Politics and European Law.

Maybe you should seek appointment then. You couldn't be much worse than some of the ones there now.

Do the taxes public service workers pay not contribute to their own pensions?

In all seriousness now what proportion of your wages do you lot contribute to your pensions? I don`t have a payslip to hand but offhand I think we (teachers) pay 5%. (The fact that I don`t know will point to my age, my lack of interest in money, and my lack of ability regarding the mundane)

(and an extra 1.5% if you`re in the spouse and children`s scheme)

One of the core differences in cost between public and private sector pensions these days is that public sector pensions remain on a defined benefit basis whereas private sector pensions are increasingly, and in many cases always were, based on defined contribution. Therefore, as a public servant, as you get older your pension will never run out whereas if you worked in the private sector it is likely that your pension be exhausted by say 80.

Maybe Private Sector workers should focus on that issue rather than begruding people with different working conditions the benefits of their jobs. It`s the exact same where I work everybody moans about the advantages everyone else has compared to them. That `s not to day that I don`t feel sympathy for people who`s pension funds took a hammering over the last while.

Defined benefit pensions are not sustainable so they will never be reintroduced in the private sector on a wholescale basis. They are not sustainable because people are living longer. 40 years ago you might have retired at 65 and would have been lucky had you lived until 75. If you take my grandfather for instance, he died earlier this year aged 92 having retired on a substantial defined benefit pension nearly 30 years earlier. I don't begrudge him at all, it was well for him and he bucked the actuaries which is always nice. However, as increasing numbers of people live to this age it is not sustainable for companies to provide such luxuries.

I would support defined contribution pensions for the public service and an increase in the State pension which benefits all.

We won`t be able to pay for that either, realistically. An increase in the pension? How are we going to pay for that with a potentially poorer economy and an aging workforce. I`d imagine that in forty years time the retirement age will be significantly older with, possibly, a graded pension.